Ladies and gentlemen, thank you for standing by for joining Sohu's Second Quarter 2022 Earnings Conference Call. Good evening. At this time, all participants are in a listen-only mode. After management prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host for today's conference call Huang Pu, Investor Relations Director of Sohu. Please go ahead.

Thanks, operator. Thank you for joining us to discuss Sohu's Second Quarter 2022 Results. On the call are Chairman and the Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lv; and Vice President of Finance, James Deng. Also with us are Changyou's CEO, Dewen Chen; and the CFO, Yaobin Wang. Before management begins their prepared remarks, I would like to remind you of the company's Safe Harbor statement in connection with today's conference call. Except for the historical information contained herein, the matters discussed on this call may contain forward-looking statements. These statements are based on current plans, estimates and projections, and therefore, you should not place undue reliance on them. Forward-looking statements involve inhere risks and uncertainties. We caution you that, a number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 20-F. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.

Thanks, Huang Pu, and thank you everyone for joining our call. In the second quarter of 2022, COVID-19 and related prevention measures, disrupted normal economic activity nationwide, but we met the challenge proactively by refining our products and technology and exploring a range of monetization opportunities. Our brand advertising revenue met the high end of our previous guidance during the quarter. Thanks to the solid performance of our online game business, the group's profitability exceeded guidance. For Sohu Media Portal and Sohu Video, we continue to generate and distribute reliable news and premium content, reinforcing our competitiveness and credibility as a mainstream media platform. Leveraging the differentiated advantages of the Sohu product metrics, we extended our live broadcasting to a greater number of scientific fields, and to various online and offline events. For online games, our performance was stable during the quarter with revenues in line with our guidance. I'll go into details about each of these businesses in a moment, but first let me have a quick look – overview of the financial performance. For the second quarter of 2022, total revenues $195 million, down 5% year-over-year, and up 1% quarter-over-quarter. Brand advertising revenues $25 million, down 32% year-over-year and up 5% quarter-over-quarter. Online game revenues $157 million, up 4% year-over-year and flat quarter-over-quarter. GAAP net income attributable to Sohu.com Limited was $9 million compared with $22 million in the second quarter of 2021, and $3 million in the first quarter of 2022. Non-GAAP net income attributable to Sohu.com Limited was $12 million compared with a $25 million in the second quarter of 2021, and $9 million in the first quarter of this year. Now, I will go through some of our key businesses. First, Media Portal and Sohu Video. So Sohu Media Portal kept improving our product, upgrading…

Thank you, Charles. I will walk you through the key financials of our major segments. For the second quarter of 2022, all the numbers are on a non-GAAP basis. You may find the reconciliation of non-GAAP to GAAP measures on our IR website. For Sohu Media Portal, quarterly revenues were $16 million, down 27% year-over-year and up 13% quarter-over-quarter. The quarterly operating loss was $43 million, compared with an operating loss of $28 million in the same quarter last year. For Sohu Video, quarterly revenues were $16 million, down 31% year-over-year and up 7% quarter-over-quarter. The quarterly operating loss was $25 million, compared with an operating loss of $30 million in the same quarter last year. For Changyou's online game business and 17173 quarterly revenues $159 million, up 3% year-over-year and flat quarter-over-quarter. The quarterly operating profit was $85 million, compared with an operating profit of $75 million in the same quarter last year. For the third quarter of 2022, we expect brand advertising revenues to be between $25 million and $28 million. This implies annual decrease of 17% to 26% and a sequential increase of near to 12%. Online game revenues to be between $138 million and $148 million. This implies annual decrease of 11% to 17% and a sequential decrease of 6% to 12%. Non-GAAP net loss attributable to Sohu.com Limited to be between $35 million and $25 million, and the GAAP net loss attributable to Sohu.com Limited to be between $38 million and $28 million. This forecast reflects our current and preliminary view, which is subject to substantial uncertainty. This concludes our prepared remarks. Operator, we would now like to open the call to questions.

Thank you. [Operator Instructions] Your first question comes from the line of Thomas Chong of Jefferies.

Hi. Good evening. Thanks management for taking my questions. I have two questions. The first one is on advertising. Given that we reached the high end of our guidance in Q2. And when I look into Q3 guidance between around 0% to 12% quarter-on-quarter growth I just want to get a sense about under both scenarios should we hit the low end and the high end of the guidance? And can you comment about the trend that we are seeing so far in the month of July if any as well as the trend for different verticals? And my second question is about the gaming business. Given that we are going to launch expansion tax in the first quarter. but we are seeing some sequential softness. Just want to get some color about -- is there any macro uncertainties that may affect the game spending in the second half? Thank you.

All right, Thomas. This is Charles. On advertising, it really depends on whether the COVID-19 situation -- whether it will allow us to be able to do offline marketing events and some, I would say, content events that draw advertisers. So, will depend, yes. But basically about whether the pandemic situation, whether it'd be locked down or not. So we see some uptick some kind of advertisers coming back and try to start marketing the products entering, I think into June and July. And we'll see.

Hi, Thomas. Can I confirm that regarding the online game business that your question were -- was the third quarter performance looks weaker than the second quarter?

I guess, we saw some sequential decline in the guidance. Just want to get some color on that front.

Yes. Yes. Okay. [Foreign Language] In the second half, the main focus will be on the expansion impact, how do they impact our revenue. And for the weaker guidance, for the third quarter, not because our Vintage -- TLBB Vintage launched the WeGame platform in the second quarter. And again, revenue jumped up to obvious -- there was a obvious jump for the game revenue and it didn't last into the third quarter. So, it will have a natural decline in the third quarter.

Thank you.

Thank you for the questions. [Operator Instructions] Our next question comes from the line of Alicia Yap from Citi. Please go ahead.

Hi, thank you. Good evening, Charles and management. Thanks for taking the question. First, I actually wanted to ask about the 3Q guidance on the net loss. And just if management can share, how you actually get into such a big loss? Is it really because of the gaming revenues is weaker? Any other reasons or which expense line that we should expect will become bigger in the third quarter? That's my first question. I'll follow up on another question. Yes.

So the -- I think the marketing expense mostly for the third quarter is the new game, right?

[Foreign Language]

Marketing expense for the third quarter because actually the marketing event was postponed right from Q2 to Q3. So that's contributed to the most part of the marketing expenses for the third quarter. And also on the portal side, that's a small part, but we do expect or we are planning to do some -- to increase our marketing activities, to promote our live streaming and also video app. And yes, we'll spend money, as we said before, but we didn't spend as much in Q2, so that both contributed to the larger net loss in Q3, but mostly the game marketing expense.

I see. Any chance you can give us a roughly amount that you have budgeted for this game marketing spend?

I think we do, but we don't...

[Foreign Language]

Yes. As we go along we'll see whether [Technical Difficulty]

I see. I see. Okay. Thank you. And then my follow-up question is on the underlying...

Sorry Alicia. This is the operator. I'm afraid that the management has disconnected temporarily. Just stay on the line. I will just reconnect them to return the call before we take your next question.

Okay. Thanks.

Do we have the management back, please? I think you may have accidentally muted. Thank you. Do we have the management back to the call please?

Yes, we are back. Are you guys there? Still there?

Yes. Thank you very much. Alicia, please go ahead with your next question. Thank you.

So Alicia did you hear what I said the last part?

I only heard about until the games will -- I mean the budget will be depending on the game's performance and you will adjust accordingly.

Yes. Yes, that's about it. So basically we spend like $10 million, $15 million, $20 million that kind of thing for the new game.

Okay. Okay. So my follow-up question is on the overall underlying economies and also the advertising sentiment. I know you -- just now you mentioned there have been some returns of the advertiser in June and July. Is that in line with what you expected or the return is actually better or worse than what you expected so far? Thank you.

Well, I think it's -- so the Shanghai and the Eastern markets are very important markets for us. So the lockdown of Shanghai in Q2 had an impact. And after Shanghai was -- this basically lifted -- lock down lifted the companies, especially, other companies are starting to -- start to spending money and having activities and marketing events. So we see it's coming back of other industry. And some, yes, for the Internet services yes for FMCGs. So it's expected. It's basically because of the lifting of our lockdown. And..

I see. And regarding the remaining of the year, is that really depends on the overall COVID situation?

Yes. So we see that for the current situation that it depends. But for now it seems that off-line activities are held – are being held with some distancing and with mask wearing and those kinds of things. So companies are do having -- are having the marketing events and we also have some activities planned or our conferences -- the coming conferences. So we see advertising improvement in Q3.

Okay. All right. Thank you so much. I will get back to the queue. Thank you.

All right.

[Operator Instructions] Alicia, do you have any follow-up questions?

I will go back to the queue and then other ask. Thank you.

At this time we don't have any more questions. You may go ahead. I will take your question as last question.

Okay. All right. Thank you. So, I guess, maybe any update in terms of the latest share buyback that management can comment on. And also overall the cost optimization effort because I think a lot of other Internet peers has done many different, sort of, cost optimization efforts. So wondering will Sohu need to do any for the remaining of the year and also the share buyback update? Thank you.

So the share buyback we're almost finished, right? We've done over $100 million, right?

We finished $90 million.

We finished USD 90 million share buyback already.

Okay.

And for cost cutting actually over the last few years we've been constantly doing that. So basically we left -- we only focused on Media Portal and Video business and cut a lot of other businesses over the last few years. So we don't have a lot of -- much optimization to do unlike some of our peers who have been doing a lot of business and then make economies in the downturn and they are doing a lot of cost cutting, but we don't need to do that.

I see. Actually can I sneak in the last one, given the current capital market? And given, we still have a pretty decent size of cash are there any emerging opportunity in terms of some of the attractive potential target? Given, the valuation has come down quite a lot in both the public and the private space? So I'm not sure, if there's anything that trigger would you use some of your cash balance that you can actually beef up some of the businesses going forward? Thank you.

Yeah, we are -- myself and -- I'm a believer of organic growth. For internet companies you buy some products or buy some companies that integration and it's -- and also informing a new -- gaining new competitive advantage is very hard. So we will -- we do have a good -- quite a sizable capital. So we will more focus on basically beefing up our current products and spending more on channels and marketing of our products on our video and the news app. And it's a social network and new live streaming. So we do not have any acquisition or the non-organic -- we don't see any -- those kind of opportunities.

Okay, great. Thank you, Charles.

Thank you for the questions. That does conclude today's conference call. Ladies and gentlemen, thank you for participating. You may now disconnect. That concludes the conference for today.

Thank you.